Mozambique to have budget deficit of 6.8 pct of GDP in 2015 – EIU

16 July 2015

Mozambique is expected to post a budget deficit of 6.8 percent of gross domestic product (GDP) in 2015, a scenario favoured by the containment of public expenditure, according to the Economist Intelligence Unit (EIU) in its latest macroeconomic report on the country.

Setting out a downward trend in the country’s budget deficit of up to 5.5 percent of GDP in 2018, the Economist Intelligence Unit (EIU) expects a gradual increase in government spending, and that this will be offset by growth in public revenue at the base of “robust economic growth” and increased tax collection from exploration of mineral resources.

In its July macroeconomic review of the country, to which Macauhub had access, the EIU said Mozambican public debt would “remain high” in the period between 2015 and 2019, at an annual average of 53.2 percent.

However, despite considering that debt levels still allow for its management, the EIU warned of external risks, which pose a threat to debt sustainability, giving the example of a hypothetical decline in demand for aluminium ingots or coal, which could have impacts on state tax revenues.

From a public spending point of view, the report signals the “weak financial position” of some state agencies and possible pressure from civil servants to increase their salaries.

Alongside this, also beginning in 2015, the repayments of debt of Tuna company Ematum, under a state guarantee totalling US$850 million, will deteriorate debt sustainability indicators in a situation also aggravated by depreciation of the metical, the EIU review said.

The EIU noted that the intervention of the Bank of Mozambique in the foreign exchange market has controlled the “pressure on the metical,” which has depreciated nearly 27 percent against the dollar in the last year, but hopes that this policy will not continue, as it has had an impact on the international reserves of the central bank, which are now US$2.6 billion.

In terms of inflation, the EIU analysts indicated it was expected to increase from 2.3 percent in 2014 to 2.9 percent in 2015, with the low prices of fuel and food products on international markets offseting the depreciation of the metical and possible increases in electricity tariffs. (macauhub/MZ)